A ‘House’ is our necessity, our safe place and the foundation of our lives. But, in today’s times of inflation, arranging a house is quite a tedious task. Whether you’re looking for a rental house or you want to purchase your own house, a person remains in a dilemma whether to rent the house or buy. This dilemma often leaves many uncertain about the best path forward. Renting offers flexibility and lower upfront costs, while buying provides stability and the potential for equity.

We tried getting answers from the experts to shed light on this critical decision. Their insights reveal the importance of evaluating personal circumstances, market conditions and financial goals to make an informed choice.

Understanding the Dynamics of Renting vs. Investing in Real Estate

Rahul Banerjee, Director of PGD Academy explains how current real estate market trends influence the decision making between renting and investing in property for young professionals. He says, “While both renting and investing have different benefits, young professionals are conventionally more inclined to rent a house than to invest in property at the onset of their careers. The option of renting a house offers flexibility while reducing the burden of upfront costs that one has to bear while investing.”

“Renting also allows professionals to switch firms and relocate quickly, a decision that can immediately boost their career growth and fast-track their professional journeys. The surging rentals in major cities in India are also nudging professionals towards the investment space. In sum, the fast-changing dynamics of the property market has spurred interest in the investment even as renting continues to remain popular among young professionals.” He further adds.

Market Challenges and Insights

Ankur Jalan, CEO of Golden Growth Fund further emphasises with data insights, “The Indian real estate market poses challenges for young professionals deciding between renting and buying. In cities like Mumbai, property prices range from ₹25,000 to ₹60,000 per square foot, with annual increases of 8-12%. Mortgage rates have risen to 8.5-9.5%, significantly affecting affordability. While government initiatives like the Pradhan Mantri Awas Yojana offer interest subsidies, many find renting more practical due to low rental yields of 2-3.5% versus capital appreciation of 7-10%. Ultimately, financial capacity and personal preferences influence this decision amidst rising living costs.”

Ultimately, the decision between renting and buying lies on a careful consideration of financial factors, lifestyle choices, and future aspirations. Each option presents unique benefits and challenges that can significantly impact one’s financial journey. Now, let’s assess the tax advantages and disadvantages of renting versus investing in real estate.

Tax Implications for Homeownership and Renting

Anil Pandey, Project Director – Rudrabhishek Enterprises Limited underscores, “When deciding between renting and investing in Indian real estate, both options have distinct tax implications. Homeowners enjoy several tax benefits, such as deductions on home loan interest (up to ₹2 lakh under Section 24), stamp duty and capital gains tax exemptions if the property is held for over two years. Joint owners can also claim separate tax benefits, and rental income allows for deductions on expenses like maintenance and insurance.”

He further clarifies adding, “Renters lack direct tax benefits but enjoy flexibility and lower upfront costs. In contrast, buying a home provides long-term financial growth through property appreciation and tax savings, making it a stronger option for wealth building.”

Ankur highlights more about what kinds of tax advantages come with renting and investing. He says, “Investment can save you more taxes besides creating significant wealth for you in the long run. Investors can claim tax benefits of up to ₹1.5 lakh on the principal under Section 80C and ₹2 lakh on interest under Section 24(b). Recently introduced changes in long-term capital gains tax have received mixed responses. Tenants can also benefit from HRA exemptions—up to 50% for those in metro cities and 40% for non-metros. Ultimately, tax benefits exist for both renting and investing, depending on personal lifestyle choices and financial goals.”

The Role of Location in Decision-Making

Yes, tax advantage is one of the important criteria to understand about the financial implications of homeownership versus renting. Location also plays a pivotal role in deciding between renting and property investment. Young professionals must evaluate their career stability and mobility, as these factors can impact the practicality of buying versus renting.

Anil further emphasises the importance of location when making housing decisions. He suggests that in prime areas like Mumbai and Delhi, renting is often more economical due to high property prices. Investors should focus on locations with strong appreciation potential, such as those near schools and transit hubs, which boost rental yields. Emerging areas with planned infrastructure also offer capital appreciation opportunities, making buying a viable option for long-term growth aligned with financial goals. 

Rahul concludes the topic saying, “For working population in India, the choice between renting and investing in property is largely influenced by location. High-cost metros often make renting the more feasible option due to steep property prices and low rental yields. Conversely, Tier-2 cities and emerging urban areas present affordable investment opportunities with potential for long-term appreciation. Suburban regions offer budget-friendly housing, though lower rental demand may limit rental income potential. Ultimately, individuals must consider their financial capacity, career mobility, and lifestyle preferences when making this decision.”

Ultimately, a well-informed decision can lead to financial security and stability, regardless of the chosen path. Balancing personal circumstances with market dynamics is key to navigating this complex landscape.